Netflix is the biggest video streaming service in the world today. It serves 190 countries with over 109 million users, with movies and series in 21 languages -- and all without ads ruining your viewing experience.
So how exactly does Netflix make any money?
The service is full of fantastic TV shows, be it Stranger Things or Black Mirror. As a viewer and subscriber, you surely want to know how Netflix plans to keep serving more episodes of your favorite shows. Let's find out.
How Does Netflix Make Money?
Netflix's main source of revenue is subscriptions, which cost between $7.99 and $13.99 per month. This totals to about $950 million per month, according to the company's earnings report [No Longer Available]. It also earns about $30 million per month through DVD rentals. The profit, or net income, is approximately $43 million per month.
Overall, the company earned $8.83 billion in total revenue in 2016, and is on track to make over $11 billion in total revenue in 2017. Netflix does not make any money through advertisements or commercials in its streaming service
How Much Does Netflix Make in a Day?
Around $1.4 million per day.
Netflix is cagey with numbers about its daily operations, or about how much content is being viewed. The best estimate is from the company's reported earnings, which showed $130 million net income in Q3 2017 (i.e. $1.4 million per day).
This is only an approximation though and not a real figure. Plus, it keeps changing based on every quarter's earnings report. But it's safe to say this trend should continue, as Netflix expects more net income in the next quarter.
How Much Does Netflix Pay for Content?
It depends on the show, movie, or deal, but Netflix says, "We will spend $7-8 billion on content (on a P&L basis) in 2018)." The company also has $17 billion in content commitments over the next several years.
This is total spending, though, which includes both licensing fees and original programming. Netflix has been a champion of original TV series, and those cost the company differently.
The Get Down became the costliest TV series ever made, with a budget of $120 million. The two biggest current hits are also quite expensive. Stranger Things season two cost $8 million per episode, while The Crown season two cost $10 million per episode.
How Much Does Netflix Spend on Original Movies?
Here are the costliest movies Netflix has made so far:
- Bright (2017): $90 million
- War Machine (2017): $60 million
- Okja (2017): $50 million
- Death Note (2017): $40-50 million
- The Irishman (2018): $100 million
But these are exceptions, either due to a major star or director, or because it was based on a famous franchise. Bright stars Will Smith, while The Irishman is a Martin Scorsese project. On average, Netflix makes films on much smaller budget. For example, the Angelina Jolie film First They Killed My Father has a reported production cost of $22 million.
As a new entrant in the movie production market, expect a few more hits and misses as Netflix tries to find movies you'll love.
Is Netflix Losing Money and Making Losses?
Technically, yes. Netflix's Free Cash Flow (FCF) was around -$2 billion in 2017. The company currently has a total gross debt of $4.8 billion. That said, it is making profits each quarter, and they are growing.
Netflix says the debts are part of its strategy, as it continues to grow its original content. It's a "spend money to make money" outlook, as Netflix tries to get people hooked to its service. If people look forward to one new show or movie every month, they are more likely to subscribe and/or continue subscriptions to the service. The strategy seems to be working, as the company is consistently adding 5 million subscribers every quarter.
When certain movies or TV series don't justify the cost, Netflix cancels them. Over the past year, it has cancelled great original programs like The Get Down, Girlboss, and Sense8.
Is Netflix's Business Model Sustainable?
The jury is still out on whether Netflix can keep doing what it is doing. So far, the company's executives and shareholders are happy with the business model.
It helps that Netflix has a proven track record of changing with the times. While it started out as a DVD rental company, its early foray into streaming video has borne fruit. Today, while the company still rents DVDs and Blu-rays, that is a tiny part of its business.
Plus, Netflix regularly passes on the cost of good content to its subscribers. The company's standard plan was first hiked to $8.99 (from $7.99) in 2014, then to $9.99 in 2016, and $10.99 in 2017. And despite higher prices, the subscriber base has only increased, showing that Netflix is worth the money. Expect more hikes in the future.
Will Netflix Be Bigger Than TV?
To us the consumers, here's what matters right now: Netflix is a profitable, stable company that should be around for the next 5-10 years. It only offers monthly plans, so there is no risk of you getting a long-term subscription and losing that money. So sit back and binge-watch the best shows.
Do you think Netflix will last and become bigger than TV as we know it today?